Top 4 Best Casino Stocks in 2021?

As things stand, the casino industry isn’t really doing all that well. The COVID-19 crisis and the ensuing economic downturn has taken its toll on casino stocks as well. The major American casinos depend heavily on Macau.. It is the  largest gaming market on the planet, and the only place in China where casinos are legal. This makes casino stocks extremely sensitive to developments that have any impact on Macau’s gaming activities. In 2014, the Chinese anti-corruption regulatory crackdown reduced the gaming activity in the area, leading to a drop in Casino stocks. Luckily, the downward trend only lasted for two years and gaming activity resumed completely after two years. However, another problem presented itself in front of Macau’s gaming activities, the America-China trade war. However, that only lasted for one year before things could go back to normal. The COVID-19 crisis has gone on to become Macau’s strongest challenge ever. It has caused a huge hit in the gaming business. All casinos were closed for a long period of time because of the COVID-19 crisis. They have reopened now, but there are very strict regulations and requirements governing them. This has reduced tourism levels and gaming activity in Macau. The first 11 months of 2020 saw Macau’s gross gaming revenue plummet by 80.5%. This clearly means that investors should be very careful while picking their casino stocks as they are extremely dependent on other factors, most notably what happens in Macau. 

Here Are the Best Casino Stocks Right Now:

1. Wynn Resorts (WYNN)

Kicking off our list of the best casino stocks is Wynn Resorts. It owns and operates Wynn Macau and the Wynn Palace in Macau, as well as Wynn Las Vegas and Encore in Las Vegas. The company is now facing the headwind of coronavirus in all the regions in which it operates. Wynn Resorts reported its financial results for the third quarter on 11/5/2020. Revenue declined 78% year-over-year to $370.5 million, which was $64 million less than expected. Even worse, the company widened its losses per share sequentially, from $6.14 in the second quarter to $7.04, missing estimates by an eye-opening $3.15.

All the properties of Wynn Resorts were open for nearly the entire third quarter but the results of the company were once again severely impacted by the COVID-19 pandemic due to the enforced restrictions, including quarantine requirements for tourists, requirements for a negative COVID test, limited number of players at tables and slot machines as well as the significant visa restrictions in Macau.

Due to all the above restrictions, the revenues of Wynn Palace plunged 97%. Revenues for Wynn Macau saw a decline of 89% while Las Vegas revenues suffered a 53% drop over the year. Wynn Resorts has suspended its dividend this year in an effort to conserve capital. Notably, the consensus estimates have greatly deteriorated in the last five months, from a call for a loss of $10.84 per share in 2020 in July to a call for a loss of $18.59 in 2020 right now.

The upcoming vaccine is bound to help alleviate the fears surrounding the coronavirus. As a result, Wynn Resorts will have ample room to grow in the upcoming years thanks to its promising growth pipeline.

The company has made progress in the design of Crystal Pavilion in Macau, which will be a major tourist attraction. In addition, Encore Boston Harbor opened in June-2019 and has exhibited decent performance so far so it has promising growth prospects ahead thanks to expected ramp-up in activity. Moreover, Wynn Resorts aims to expand to Japan, which legalized casino gambling three years ago, though it will take many years before the company opens a casino in Japan.

On the other hand, the company has been caught off guard, with net debt of $10.8 billion, which is 88% of the current market capitalization of the stock. Therefore, the stock is carrying an increased amount of risk right now due to its high level of debt.

However, the coronavirus crisis will probably subside in the second half of next year and the long-term growth prospects of the company will stay intact. A 4% annual earnings-per-share growth off their mid-cycle level is expected through 2025. 

2. MGM Resorts (MGM)

Next on our list of the best casino stocks is MGM Resorts. The firm owns and operates numerous hotels, conference halls, and casinos in China and America. The company has the least exposure to Macau in this group of stocks. As a result, it suffered much less than its peers from the trade war between the U.S. and China and the protests of people in Macau a few months ago. Due to the rapid spread of the coronavirus, MGM Resorts suspended all its casino operations in Las Vegas for a considerable period in the second quarter.

In late October, MGM Resorts reported (10/29/20) financial results for the third quarter of fiscal 2020. The company had all its properties open at the end of the quarter. However, its revenue plunged 66% over last year’s quarter due to the suspension of the operations of the company in the U.S. for part of the quarter.

As a result, MGM Resorts switched from a profit of $0.31 per share in last year’s quarter to an adjusted loss of $1.08 per share.

Due to the unprecedented downturn that has resulted from the pandemic, MGM Resorts cut its dividend by 98% in April. Moreover, in May, it issued $750 million of 5-year bonds at 6.750%. The high interest rate reflects the desperation of the company for funds and the high debt load of the company. Net debt is $20.1 billion, which is 130% the current market capitalization of the stock.

Nevertheless, due to the headwind of coronavirus, along with a huge debt load, shareholders should not expect a material boost in dividends and share repurchases for the foreseeable future. That said, the COVID- 19 pandemic is expected to subside in the second half of 2021 thanks to the massive distribution of vaccines worldwide. 

Due to the headwind from coronavirus, MGM Resorts is expected to report a net loss of $3.50 per share in 2020. Earnings-per-share are expected to gradually turn positive, with expected annual growth of 5% through 2025. Because of the massive dividend cut, dividend returns are expected to be negligible.

3. Melco Resorts (MLCO)

Next on our list of the best casino stocks, is Melco Resorts. The firm owns and operates casino gaming and entertainment casino resort facilities all over Asia. Since Melco Resorts is highly leveraged to Macau’s gaming activity, it is very vulnerable to the COVID-19 induced downturn in Macau.

In 2019, Melco Resorts saw an 11% rise in revenue and a 15% rise in earnings per share. That upward trend was caused by the firm’s strong performance in the mass market table gaming activity. However, conditions have predictably reversed due to the pandemic, with third-quarter revenue declining 85% and adjusted property EBITDA declining to a loss of $76.7 million.

Melco Resorts is most likely going to lose $2.70 per share. Strict travel restrictions in Macau are a big reason behind the downturn.

On the bright side, some vaccine studies have reported exciting results and hence billions of vaccines will be distributed worldwide in 2021. It is thus reasonable to expect the pandemic to subside in the second half of 2021. As soon as the effect of coronavirus begins to fade, Melco Resorts has promising growth prospects ahead. Melco Resorts is also expanding its City of Dreams in Macau and is taking steps to open an integrated resort in Yokohama, Japan. It is also developing City of Dreams Mediterranean, which will become the largest integrated resort in Europe. All these initiatives are likely to be significant growth drivers as soon as Macau returns to normal.

Melco’s extreme leverage to Macau’s gaming activity must make all investors have conservative expectations from the firm, despite the promising growth prospects.

Given its healthy balance sheet, the company is likely to resume paying dividends once the coronavirus crisis ends. The income-oriented investors need to remain cautious though, given the firm’s vulnerability to economic downturns and is very sensitive to any casino-related policy change in China and the ongoing coronavirus crisis.

4. Las Vegas Sands (LVS)

Rounding off our list of the best casino stocks to buy right now, is Las Vegas Sands. This firm is a leading developer and operator of integrated resorts in the U.S. and Asia. Due to the outbreak of coronavirus, Las Vegas Sands is facing strong headwinds in Macau and in the U.S. As mentioned above, gaming activity has collapsed in Macau. Because of COVID-19 lockdown related casino closures, Las Vegas Sands was expected to lose approximately $2.00 per share this year.

On the other hand, beyond this year, Las Vegas Sands has promising growth prospects ahead. As Japan legalized casino gambling three years ago, Las Vegas Sands has announced that it intends to open integrated resorts in Tokyo and Yokohama. 

Due to the pandemic, Las Vegas Sands has suspended its dividend since early 2020. However, the company does have a promising growth potential and will most likely resume paying off its high dividend yield once the pandemic is over, most likely at the second half of 2021.

Furthermore, Las Vegas Sands continues to pursue growth by expanding and upgrading its Macau properties. The company launched Four Seasons Tower Suites Macao last year while it also expects to launch the Londoner Macao in January-2021 and expand Marina Bay Sands in Singapore.

Thanks to all these growth drivers, the company is expected to grow its earnings per share by about 4% per year over the next five years off their mid-cycle level of $3.20 per share.

In our list of best casino stocks, Las vegas Sands is the one with the strongest balance sheet. This ensures that the company will be better equipped to survive the COVID-19 crisis and bounce back strong once the pandemic subsides.

Best Casino stocks in 2021: Honourable mentions

  • Monarch Casino and Resort Inc.
  • Hilton Grand Vacation Inc.
  • Penn National Gaming Inc.
  • Ballys Corp.
  • Boyd Gaming Corp.
  • Russell 1000
  • VanEck Vectors Gaming ETF (BJK)

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